Save our Banks... they sure need it

[Jarinu]

Something I was sent today

"The Banks are in the Money $$$$$$$$$$$$

This was sent to me by a Member, I thought to share as it is so very relevant even more so with todays Interest rate rise.

The RBA has decided to increase the cash rate by 0.25% in an effort to dampen down an economy that appears to be moving back into a growth cycle.

A growing economy is a good thing for our general prosperity but growth can be quickly neutralised by the affects of inflation. Unfortunately for mortgage holders, the primary anti inflation weapon the RBA has at it's disposal is to increase interest rates.

As we appear to be coming out of the global financial crisis, I thought you might find it interesting to view the new landscape. Just like a violent storm passing through a town, the GFC has forever changed the Australian home loan environment. THIS STORM WAS LIKE A CYCLONE PASSING THROUGH A CARAVAN PARK.

* RAMS is now owned by Westpac.
* Wizard is now owned by Aussie.
* Aussie is now 33% owned by CBA.
* St.George is now owned by Westpac.
* CBA now owns Bankwest.
* The big 4 banks now write over 92% of our home loans compared to 60% before the GFC.
* The margin between the RBA cash rate and the variable rate available to bank customers is now approximately 2.1% compared to approximately 1.1% before the GFC.
* NAB has purchased approximately 35% of all mortgage broking groups.
* Most lenders now require borrowers to contribute 10% of the property value compared to 5%
(or even 0%) before the GFC.

THERE IS HOWEVER ONE INDUSTRY CHARACTERISTIC THAT HAS WEATHERED THE STORM. The profits being generated by our big four banks. The extraordinary revenue margins and increased market share created by the GFC has allowed the banks to maintain profits despite a large increase in bad debts.

PROFITS: CBA - $4.4 Billion,
NAB - $3.7 Billion,
WBC - $4.5 Billion,
ANZ - $3.3 Billion,
TOTAL = $15.8 BILLION!!!

It is interesting to note that the ANZ Bank is forecasting a 1% increase in the cash rate over the next 12 months. Many borrowers might be tempted to jump into a fixed rate in an effort to avoid the increases but the big banks are well ahead of that idea. The five year fixed rates and the three year fixed rates have been shooting up since March.

This is a bitter sweet decision by the RBA."

Should we be surprised?

[Gnobuff]

Good to see they are not just screwing over the kiwi's also

Our OCR (official cash rate) is lower than the aussie one, and last week was decided not to increase it. Yet our floating rates are still above the australian floating rates.

If thats not enough, the big 4 aussie banks (+ Rabobank) decided it was still not making enough money and basically did a scam so that instead of paying 30pct (company tax rate) they paid 8pct. $2 billion dollars. BNZ ( = NAB, which is disappointingly ironic) + the others are thru the courts atm, they've appealed against the first decison.

[Creac]

* RAMS is now owned by Westpac.

This was happening before the GFC.

* Wizard is now owned by Aussie.

This was happening before the GFC.

* Aussie is now 33% owned by CBA.

This is new, but not surprising, CBA underwrote much of the Aussie portfolio anyway (the Non Bank lenders all had to get their money from somewhere - they don't have a deposit base for the most part).

* St.George is now owned by Westpac.

This was happening LONG before the GFC.

* CBA now owns Bankwest.

This was started before the GFC but only just and primarily in response to the Westpac/St George deal.

Suncorp also put itself out to the market, but a suitable buyer hasn't yet been found. The smaller institutions were, by and large, looking for mergers before the GFC.

* The big 4 banks now write over 92% of our home loans compared to 60% before the GFC.

Somewhat misleading - see the comment above about CBA underwriting and such. Most of the non-bank lenders were really just super-brokers, for want of a better term. The core lending fell back to the banks. Certainly some level of non-core lending has reduced - when liquidity dries up, only those with the deepest pockets can continue to lend although the Federal government did help by securing the smaller institutions such as credit unions to help them to be more competitive.

* The margin between the RBA cash rate and the variable rate available to bank customers is now approximately 2.1% compared to approximately 1.1% before the GFC.

Yes, but the banks obtain a very large portion of their funding from offshore. The RBA cash rate reflects what the Treasury will pay for bills. If you're getting money from other parts of the world (and they need to in order to have sufficient funding to meet the local demand), then that affects your rate. The margin against their cost of funds appears (other than APRA or the RBA, no one outside the banks themselves can tell you for sure yet) to be relatively stable.

Bear in mind that even at 2.1% (which is not the net margin), that's their entire return on investment for those products. How would you feel if you were only getting a 2.1% return on your money? You sure wouldn't be happy given that CPI was running over 3% (ie you're in a net loss situation). That, of course, is why they have other fees and make higher margins on other types of loans. The low return reflects the low risk.

* NAB has purchased approximately 35% of all mortgage broking groups.

See above.

* Most lenders now require borrowers to contribute 10% of the property value compared to 5%
(or even 0%) before the GFC.

This is a GOOD thing. People who mortgaged themselves too highly are the ones in trouble.

PROFITS: CBA - $4.4 Billion,
NAB - $3.7 Billion,
WBC - $4.5 Billion,
ANZ - $3.3 Billion,
TOTAL = $15.8 BILLION!!!

Great. Now have a look at their total capitalisation and determine the return as a percentage of capital investment, then compare that to what you would expect from your investments. Remember, a lot of that return is funding your superannuation that has substantial investment in the banks in the stockmarket.

It is interesting to note that the ANZ Bank is forecasting a 1% increase in the cash rate over the next 12 months. Many borrowers might be tempted to jump into a fixed rate in an effort to avoid the increases but the big banks are well ahead of that idea. The five year fixed rates and the three year fixed rates have been shooting up since March.

Of course. In their world, they can't take fixed rate borrowings, so they have to anticipate the market in order to offer you fixed funding otherwise they'll lose money. If you don't like it, go with the market.

I know a lot of folks aren't interested and like to blame the banks. That's fine. Do whatever you need to get through the day and don't run the risk of the truth getting too much coverage ahead of the scaremongering.

[roobboo]

Yah dividend yields have fallen so the poor banks do need more cash so they can pay me (Umm I mean their poor suffering shareholders). Most/all banks reecently capitalised via public float. This caused poor suffering shareholders to invest more or see there holding diluted. To add insult to injury most banks portioned there discounted float shares primarily to their institutional investors and only tossed their retail investors a few scraps from the table. This was certainly true of NAB who offered 2.1 billion to institutional holders and only 750 million to retail share holders. the retail offerring was way oversuscribed to the tune of 2.2 billion and we had our allocations reduced to 40% while the institutions got their full subscriptions.

So in short, use your credit cards till they start to melt and pay lots of interest in mortgages, car loans,holidays and such. The poor suffering shareholders need you. Ohh and point 2 is in business the little guy always gets screwed.

[Creac]

To add some numbers - the big 4 have assets of around $2,300 billion ($2.3 trillion using US/financial trillions as opposed to UK/scientific trillions). That means $15.8 billion in profits is just, in round numbers, a return of 0.7% p.a.

[Hiroki]

Who woke up Creac by bitchin' 'bout banks.

Jarinu... now YOU should know better.
But I'm not angry with you Jar.. I'm just disappointed.

[Vexo]

Who woke up Creac by bitchin' 'bout banks.

Jarinu... now YOU should know better.
But I'm not angry with you Jar.. I'm just disappointed.

I only read all of Maz's post, because I figured Creac would come sort it out! Interesting stuff, when you have good commentary as well!

[Jarinu]

Yep - wondered if creac would come out of retirement.

Now creac factor in if you will why our banks are out preforming most all other banks around the world and why our banks are so better off than these other banks?

Explain how our banking system has financial securities on morgages which survive the reposession of said bad assets? That american banks dont have legal backing for.

These are of course all good things... for the banks

The fact that the banks have maintained profits is the point creac. While most all other businesses have taken some kind of hit. Banks have maintained increasing profit margins. Dont tell me that passing on the cost of the finance to their customers doesnt factor in here. Or that translating billions of profit into what the margin is - its PROFIT.... not INCOME or TURNOVER

This is a GOOD thing. People who mortgaged themselves too highly are the ones in trouble.

I thought it was the loans without proper scruitiny were the main issue. oh wait no that was America. Low doc loans cannot be obtained for more than 60% meaning these poor buggers have to put in 40% equity or funding now verses 80% before the financial crisis. Those non employees are such a risk!

[Creac]

Our banks are profitable because of the regulatory control via APRA and the RBA which ensure better lending standards and practices and appropriate levels of capital adequacy.

Would you prefer our banks going bust? How would that help the economy? The last time we had a bank go bust was State Bank of Victoria that cost the Vic government $900 million to bail it out, not counting thecist of unemoyment.

The major banks are massive employers (direct and indirect) and hold a substantial portion of superannuation investment in their stock. If they were to fail not only would the lack of liquidity have catastrophic results in the economy in and of itself but the flow on effect would be devastating.

Healthy banks provide the means for a healthy economy.

What's wrong with them making a small profit (and it is small given the value of the businesses)? The company I work for is making a profit - is that bad? Just because there's a downturn doesn't mean business needs to avoid turning a profit. Those profits are what generate investment and growth or provide a guard against the bad times.

[Jarinu]

What's wrong with them making a small profit (and it is small given the value of the businesses)? The company I work for is making a profit - is that bad? Just because there's a downturn doesn't mean business needs to avoid turning a profit. Those profits are what generate investment and growth or provide a guard against the bad times.

... the rest of the world operates and returns a REDUCED profit because of the GLOBAL FINANCIAL CRISIS. Banks have maintain them.

FINANCIAL CRISIS - BANKS - FINANCIAL INDUSTRY - MAINTAINED PROFITS

What the fuck is confusing about my ire?

No I dont want them to crash as that doesnt help anyone but lets not be confused into thinking the way they avoid returning a lowered profit is from forwarding costs on to the consumers which are the Australian public.

That means,, ding ding ding... the public have a harder time of things. So yeh it shits me that banks are keeping shareholders happy at the cost of making things harder for their customers.

The underlying problem is the way the fractional banking system works overall but I dont see any global reform comming for that ever before it all really lands in a heap,

Our banks are profitable because of the regulatory control via APRA and the RBA which ensure better lending standards and practices and appropriate levels of capital adequacy.

No my point was trying to educate on the differences of what these organisations have in place with regards lending criterior and with regards what differences there are between the contracts that the banks are aloud to maintain with its customers and how they differ from the contracts in other parts of the world specifically the unites states.

[Creac]

When costs go up they are typically passed on to customers if the market can bear it. In this case the cost to customers decreased. You wanted it to decrease more but the rates are lower and still remain lower.

Why must banks reduce their profit here just because other banks have issues? Maintaining a moderate profit level is perfectly reasonable. Anyone with a mortgage is paying less at the moment which is good.

Your other point seems to be that our regulation here is better than the US - I agree.

If you want to talk conspiracy theories or the like I'm not interested, mate. All that's happening is pretty simple and above board.

I'm typing this from my iPhone so please excuse any typos.

[Vexo]

Denmark is hit less than certain other nations, but far as I've heard it's only the morons who built new houses or took mortages they couldn't support, who're screwed.... and frankly... serves them well.

...not counting thecist of unemoyment.

I'm typing this from my iPhone so please excuse any typos.

If those two aren't related, Creac just used two big words in one sentence I've never heard of before!

[Jarinu]

The slimey bullshit thing is that the banks have increased the gap between the cash rate and their rates to cover their expenses. Across the boards when you look at the big 4 banks. They have used the changes in official cash rate as camouflage to the increasing of this margin.

I guarantee this will never reduce more than a token amount.

The consolidation of banking at the end of the day is ONLY to do with increasing the profit margin. One of the primary reasons voiced is due to the finance rating system with regards how larger organizations can get discounts to the acquisition of finance around the world.

Perhaps you can go to the trouble of explaining why the banks have been consolidating as opposed to innovating - how the global financial system promotes this instead of competition.

I am not talking about them being able to close branches or reduce jobs which is often a result of such activities but the avenues with which banks have for reducing their own costs other than passing them along to customers.

Thats not a flaw in the system right?

How about debt to earning ratios of the populace and the promotion of credit appitite for aquiring the things people want in life like a house. Then that this credit appetite becomes the primary control index for "slowing" inflation. Sensible system.

[Aedryen]

it's really sad that I love these posts....Creac great response I guess u work in finance

[Jarinu]

OMGOMG I forgot my most favorite one. Rate change delay HORRAY!

RBA changes rates yesterday

Announcement from all 4 large banks that they are matching the change.. Changes are active from....

Westpac - 6.31 per cent as of Friday November 6, from 6.06 per cent.
CBA - 6.24 per cent as of Monday November 9, from 5.99 per cent.
ANZ - 6.31 per cent as of Monday November 9, from 6.06 per cent.
NAB - 6.24 per cent as of Friday November 6, from 5.99 per cent.

ok now thats dandy basically 3 working days for all of them.

Can you remember how long it took them to pass on any of the reductions?

Thats right between 15 and 25 working days on a good number of them.

Interested calculated daily - HORRRRAY

Dont spin me bullshit about finance contracts and their committments.

[Creac]

Vexo - "unemployment" and "cost".

Maz - I told you I'm not interested in discussing conspiracy theories - it's pointless. Feel free to continue sensible discussion if you like, though. In simple terms being bigger, as with any organisation, has various pros and cons. It's no mystery - banks are in it to make money just like any other business. Of course they're trying to take advantage of market movements. More competition would be great so long as we're not left with the sort of mess the US ended up in. It's up to consumers to react if they don't like the products. Typically, as rates rise a point comes when margins have to reduce to stop the decline in demand from reducing overall profit. It's to do with the economic concept of price elasticity.

Aed - used to.

[Creac]

OMG that evil Westpac has LOWER profits!

http://www.abc.net.au/news/stories/2009 ... 732600.htm

[Jarinu]

Maz - I told you I'm not interested in discussing conspiracy theories - it's pointless. Feel free to continue sensible discussion if you like, though. In simple terms being bigger, as with any organisation, has various pros and cons. It's no mystery - banks are in it to make money just like any other business. Of course they're trying to take advantage of market movements. More competition would be great so long as we're not left with the sort of mess the US ended up in. It's up to consumers to react if they don't like the products. Typically, as rates rise a point comes when margins have to reduce to stop the decline in demand from reducing overall profit. It's to do with the economic concept of price elasticity.

What conspiracy theory are you talking about? I am talking about widely available pieces of information available in the press and recognizing oddities in those pieces of information rather than saying its ok.

If your talking about the fractional banking system when I talk about the banking system. Well that IS also widely available information on how westernised economy finance works.

I am a consumer - I am communicating there is a basic slimy bullshit issue with the way the australian banking system has been able to maintain its position at the expense of the consumers and that we shouldnt put up with it.

It amazes me that the government is pushing Testra to break itself up in the name of the consumer while the above bullshit we accept in our banking system on a day to day basis is allowed to occur

[Jarinu]

OMG that evil Westpac has LOWER profits!

http://www.abc.net.au/news/stories/2009 ... 732600.htm

omg omg and

http://www.dailytelegraph.com.au/money/ ... 5791507630

supprise supprise

Strangely before this infoamrtion even came to light I have been in process or moving all my banking interests to Westpac as the lesser of 4 evils.

[Aedryen]

It amazes me that the government is pushing Testra to break itself up in the name of the consumer while the above bullshit we accept in our banking system on a day to day basis is allowed to occur

That's why we have 4 big banks and not 1 huge bank screwing us

[Kofn]

Yup 4 banks screwing us is so much better

[Gnobuff]

To add some numbers - the big 4 have assets of around $2,300 billion ($2.3 trillion using US/financial trillions as opposed to UK/scientific trillions). That means $15.8 billion in profits is just, in round numbers, a return of 0.7% p.a.

I think you've added an extra 0 to their capitalisation.

4 Big Aussie Banks
Top four banking groups in Australia

The top four banking groups in Australia ranked by market capitalization at share close price 30 July 2009:
Rank Company Market capitalization (AU $)
1 Commonwealth Bank $63.2b[2]
2 Westpac Banking Corporation $62.8b[3]
3 National Australia Bank $49.0b[4]
4 Australia and New Zealand Banking Group $44.4b[5]

=$219 Billion in capitalisation.

Now we have the correct figures, simple maths shows that the profit is 7.2pct.

Creac, when you said 'To add some numbers', i thought you were going to do some addition, not actually adding numbers onto the end.

[Jarinu]

I think creac may have been talking about the tangible assets the banks have their meathooks into rather than their market capitalization.

[Creac]

That's why I said assets and not capitalisation

I was very deliberate in using that term because assets reflect the total investment of the company that is underlying the return.

[Jarinu]

Sure but when companies on the stock exchange talk about returns creac they are talking about their returns based on market capitalization arnt they? They dont give a rats ass about how many assets they have their paws on.

Never been overly clear on that one.